Wired Editor-in-Chief Chris Anderson on the Future of Free

You could call it Anderson’s Law: Digital drives the prices of content down to zero. Don’t agree? It’s like arguing with gravity.

“This law of gravity is un-fightable,” Wired Magazine editor-in-chief Chris Anderson told the opening session at Wired’s first-ever business conference, Disruptive by Design. “Because if you don’t do it, someone else will. Because they can. If it’s not zero today, it will be zero tomorrow.”

Anderson kicked things off Monday with a fast-paced talk on the history and implications of giving away products for free — the topic of his latest book, Free: The Future of a Radical Price. He traced the history of free products from Jell-O’s giveaway of billions of free recipe books starting in the ’20s to today’s free e-mail programs and beyond. His central thesis: as the marginal cost of creating a product drops towards zero, its price will do the same. Companies that anticipate these trends can sometimes disrupt entire markets — see transistors vs. vacuum tubes in the ’60s.

“This is the law of gravity online,” said Anderson, referring to Joseph Bertrand’s 1883 statement that “In a competitive market, price falls to the marginal cost.” However, that’s not to say that no one will pay for anything in his model.

“What it says is that anything that becomes digital will become free — not to say that everything online will be free, but that everything will be available in a free version, so that fundamentally, you’re either going to be competing with free or you’re going to be making a product free and selling something else, because the marginal cost for these products is the same for everybody — which is to say zero.”

Anderson sees many areas of digital content as obeying this law, including music, video, and video games (the big three “shiny disc” industries), news, books, and e-mail. Under Anderson’s model, people will continue to pay good money to save time (that is, those who have more money than time will), lower their risk (such as paying to assure that their Second Life land will still be there, or that their operating system will be supported), because they love something (such as buying virtual items in free videogames), or to increase their status in a community.

What about Anderson’s own book — does he plan to follow his own advice and offer a free version?

“The answer is that the book, in all digital forms, is going to be free — audio books, eBooks, web books, etc.” he concluded. “When the marginal cost of the book is zero, the price will be zero as well.”